I quite often get the question from my buyer clients in a competitive market, if using a seller’s Realtor can increase the chances of getting the house? Before I outline the risks of buying with a listing agent, I will outline the rules in Ontario in dealing with seller and buyer on the sale of the same property.
In Ontario, buyers and sellers hire a brokerage, not a Realtor, and their agreements are with the brokerage, not the Realtor.
The Listing Realtor responsibilities to the seller are as follows:
- Promoting the best interests of the seller (ie: negotiate price and terms that favour the seller.
- Revealing to the seller anything they know about the buyer (such as buyer’s circumstances, their willingness to pay more than they’ve offered, and any other information that they become aware of.)
- Keeping confidential anything the seller shares (such as: why they are selling, the price they may be willing to accept, etc.)
The Buyer’s Realtor is the person that represents the buyer. The Realtor can represent the buyer in 2 ways:
- The buyer signs a Customer Service Agreement and as a result, the Realtor treats the buyer as a Customer. When you are being represented as a Customer – the Realtor does not work solely in your best interest and only provides restrictive services. In a Customer arrangement the Realtor’s obligations are as follows:
- Provide fair, honest, and integrity service
- Conscientious and competent service
- Only disclose to you the material facts that he or she already knows or ought to know – they are not required to take any further investigation.
- Limited privacy obligations
- Fiduciary duty – the Realtor must promote and protect your best interests at all times
- Negotiate in the best interest of the buyer
- Maintain confidentiality of any information the buyer shares with the Realtor
- A Realtor must take steps to determine and disclose to you all material facts about the property
In Ontario, it is legal for a Realtor to work for both a buyer and seller. This is called Multiple Representation and it is complicated but it does occur that a buyer client is interested in a Realtor or Brokerage listing. When a Realtor is working for both the buyer and seller – they are acting as mediators and have the following obligations:
- Confirm in writing that buyer and seller understand and consent to the Realtor representing both sides
- Do what is best for both the seller and buyer (this is hard to do and provide the best service for one party when it means sacrificing something for the other party)
- Not reveal confidential information to either side
Are you confused? It will become clearer as you read the balance of my blog.
The Dangers of Buying Through Listing Realtor?
There is a widespread opinion that the buyer will get the best deal and will win the bidding war if working with the listing Realtor. It is true that the listing Realtor will see all the offers and could, in theory, tell you how much to bid to win the house, but that is 100% against the real estate code of ethics. Any agent that shares with you what to offer to purchase the property with them is unethical and risks losing their real estate license.
The other misconception is that the secret inventory of houses the buyers dream of is exaggerated and rarely works to the buyer’s advantage. There is a perception that every realtor has a bunch of secret inventory – homes that aren’t listing and that agents’ own buyers will have access to without competition. This rarely happens and more importantly, it does not make sense for the seller to sell to you instead of exposing their home to the market – particularly in our current seller’s market.
Generally, it is not cheaper to buy with the listing Realtor. There is a perception that buying through listing Realtor, they’ll save on purchase price as the Realtor is going to double-end the commission and you’ll get part of the commission. The truth is that the seller pays the commission so buyers can’t negotiate the commission – that discussion took place on listing the home and has nothing to do with the buyer. If the seller saves any money if the Listing Realtor brings a Buyer, any commission savings goes to the seller, not the buyer.
When a Realtor represents both the buyer and seller (known as multiple representations) whether you are a Client or Customer the Realtor can’t advise you on what to pay for the property. If you are being represented as a Customer, the Realtor’s responsibility is to the Seller and working for their best interest, not yours. In situations where the buyer is a Client the brokerage represents both sides and can’t reveal anything, they know about the seller or buyer which includes recommending an offer price.
When working with the listing Realtor the Realtor’s goal is not to get you that dream property that is right for you, their goal is to get you to buy their listing. Having your own buyer’s agents means they are working to help you find that perfect home at the best possible price no matter how long it takes.
Buyers that work with a listing Realtor almost always reveal personal information and financial situation that may be detrimental to their negotiations. When working with a buyer’s Realtor this information is kept confidential so it can’t be used against you in offer negotiations.
One of the most important skills is negotiation skills on your behalf and in a multiple representation situations that is virtually impossible.